You're reading: Moody’s: Ukraine’s banking system outlook changed to stable from negative

Moody's Investors Service on May 31 changed the outlook for Ukraine's banking system to stable from negative, the rating agency said in a statement.

“The change in outlook reflects our view that the economy will begin to emerge from a deep recession in the coming 12-18 months, which will help contain further asset quality deterioration. Improved funding conditions will support core lending, and the local currency’s recent stabilization will help slow the decline in banks’ solvency,” the statement reads.

Moody’s says it considers that rising local currency deposits and limited refinancing needs will improve banks’ funding over the next 12-18 months, supporting the stable outlook. Improving confidence in the hryvnia and falling inflation expectations led to a 12 percent rise in local currency deposits between March 2015 and March 2016, marking a turnaround from the past two years, when local currency deposits declined sharply. The hryvnia’s stabilization will help slow the decline in banks’ solvency.

“Local currency deposits accounted for 81 percent to total customer accounts of Ukrainian banks, and 50% of total non-equity funding last year, which is an important strength because it gives banks access to a relatively price-stable source of funds,” says Elena Redko, an Assistant Vice President and Analyst at Moody’s.

Moody’s says its stable outlook reflects the limited refinancing risks for banks, as upcoming scheduled debt payments are now manageable. Ukrainian banks have accumulated liquidity cushions which, as of year-end 2015, were large enough to cover 84% of cross-border debt service payments coming due in 2016 and a series of distressed debt exchanges that took place in 2015 shifted major wholesale debt repayments to 2018-19.